The government has decided to seek a ban on referral fees in personal injury claims in an effort to help reduce car insurance premiums.
At present, if you have a car accident you are often induced to make a ‘no win, no fee’ claim having seen a TV advert or direct contact via a SMS text. The claim will be passed between claims management companies, insurance companies and lawyers, who will charge each other for ‘referring’ the claim up the line.
The lawyer will sue for compensation and if successful recover costs from the losing defendant which will reimburse them for the initial referral fee.
This move by the coalition government aims to tackle arrangements that have led to high costs, encouraged a compensation culture and created an industry which pursues claimants for profits, with the net effect being that average car insurance premiums have risen.
Honest motorists paying the price
Jonathan Djanogly, Justice Minister, said of the announcement: ‘The ‘no-win, no-fee’ system is pushing us into a compensation culture in which middle men make a tidy profit which the rest of us end up paying for through higher insurance premiums and higher prices.
‘Honest motorists are seeing their premiums hiked up as insurance companies cover the increasing costs of more and more compensation claims. Many of the claims are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents.
‘Referral fees are one symptom of the compensation culture problem and too much money sloshing through the system. People are being encouraged to sue, at no risk to themselves, leaving schools, business and individuals living in fear of being dragged to the courts for simply going about daily life.’
Richard Lloyd, Which? executive director, welcomed the move: ‘This is great news for motorists. Referral fees feed the growing compensation culture that has been pushing up insurance premiums at a time when many families are already feeling the pinch. It’s absolutely right to ban them, and quickly.’
Car insurance review
The announcement on referral fees comes hot on the heels of the decision by the OFT to investigate car insurance premiums. The OFT is going to investigate why car insurance premiums have shot up by around 40% on average over the last year.
The OFT intends to publish its findings in December and may take further action if it decides that the industry is acting in a non-competitive manner or is otherwise unfairly treating customers. Selling on customer information to personal injury lawyers is one way in which the industry has been tarnished.